Swire Properties Limited (HKG:1972) shareholders should be happy to see the share price up 10% in the last month. But if you look at the last five years the returns have not been good. You would have done a lot better buying an index fund, since the stock has dropped 51% in that half decade.
On a more encouraging note the company has added HK$4.4b to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Looking back five years, both Swire Properties' share price and EPS declined; the latter at a rate of 38% per year. This fall in the EPS is worse than the 13% compound annual share price fall. The relatively muted share price reaction might be because the market expects the business to turn around.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Dive deeper into Swire Properties' key metrics by checking this interactive graph of Swire Properties's earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Swire Properties the TSR over the last 5 years was -39%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
We regret to report that Swire Properties shareholders are down 14% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 5.4%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 7% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 3 warning signs for Swire Properties you should be aware of, and 1 of them is significant.
But note: Swire Properties may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Hong Kong exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.